Parliament and Council agree to reform Emissions Trading Scheme

6 February, Brussels – The European Parliament has passed a new law to strengthen the Emissions Trading Scheme (ETS), to withdraw some allowances on the ETS Carbon Market, and introduce new funds to foster innovation and support the low carbon transition.

The law, which already has the informal agreement of the Council of the EU, will see industrial operators pay a higher price for CO2 emissions in a bid to meet the EU’s obligations under the Paris Climate Accord.

The reforms strengthen the Market Stability Reserve system, which, when triggered, can absorb up to 24% of excess allowances in each auctioning year, to increase their price and encourage emissions reductions. The pre-reform ETS was criticised for allowing excess allowances to build up, thus reducing prices below levels needed to encourage business to make the transition to low carbon technologies.

Additionally, two new funds will help to support the transition. A Modernisation Fund will help lower-income Member States to upgrade their energy infrastructures, whilst an innovation fund will provide financial support for renewable energy, carbon capture and storage and low-carbon innovation projects.